The taxman giveth ...

May 13, 2005

A little more than half of the school districts in the state operate in the red. They have to deal with such grim realities as spiraling medical costs and a state government that doesn't have a lot of cash to give way.

They should not, though, have to deal with a sudden, unexpected demand that they return a huge chunk of their operating budget. That's what can happen when a local business wins an appeal of its property tax assessment. The local schools have to return any money collected under the faulty assessment. Often, that is money they collected and spent years earlier.

Forty-two school districts in Cook, Lake and DuPage Counties collectively have lost more than $200 million from such tax appeals since 1998, according to Donna Baiocchi, executive director of Ed-Red, an advocacy organization for suburban school boards. The Chicago Public Schools system has had to refund $200 million. The number and size of such refunds have escalated in recent years.

Businesses have every right to appeal their taxes, as do individuals. But there are some reasonable ways to soften the blow to schools.

The General Assembly is considering legislation that would cap the interest rate on refunds to the inflation rate or 5 percent, whichever is less. Schools now are required to pay back the refund, plus 5 percent interest. That qualifies as an excellent return on investment for businesses--but a bad deal for schools.

Another bill would require that taxing bodies be notified of major property tax appeals so they can anticipate a budget hit. In Cook County, schools often don't know about major appeals until the moment they get hit up for the refund.

A third bill--the most significant one--would change the way businesses are compensated when they win an appeal. Rather than get a refund for a certain amount, their assessment would be lowered temporarily so they would save that amount in future taxes.

That way, the businesses would get what is due to them, but the schools wouldn't lose the money. Every other taxpayer would see a slight rise in taxes to make up the difference. Is that fair to other taxpayers? Yes. When a large business is overassessed, it pays too much in taxes and everybody else pays a little less. This legislation would correct the imbalance.

Tax appeals often take years to be resolved. All taxing bodies are affected by such refunds, but schools get hit hardest because they rely so heavily on property taxes. Schools receive more than half the take on a typical tax bill.

Schaumburg School District 54, with an annual budget of $180 million, has had to refund $28 million since 2001. "Anytime you lose that kind of money it's very difficult ... to make it up," said Moshin Dada, assistant superintendent for business services.

In Northfield, School District 31 officials learned last fall they owe Allstate Corp. a refund that amounts to 17 percent of the district's $11 million budget.

"We can't paint the corporations as bad guys, because they're simply following good business practices and trying to combat what they think are unfair assessments," said Supt. Debra Hill, who oversees 852 students. "But how do you budget, how do you expect to pay bills?"

Good question. The legislature can go a long way toward supplying some answers.